I also have a HSS that I got from Overstock.
The bridge/tremolo should be set so that the base plate is parallel to the top of the guitar body. That is if you are going to use the tremolo.
The strange sound with the humbucker and middle pickup engaged, the "off" sound, is actually a factory screw up. I'm not 100% sure which wires to use but the HB pickup is a 4 conductor and 2 wires are supposed to be wired together and one to the switch and the remaining wire to the volume pot. The two that are wired together just tape the end and leave them loose in the cavity.
I can't remember the color combination how mine came. I just know that it was out of phase in this position. I swapped the volume and switch leads around and it took care of the problem. I am not happy with the way this sounds either. The output changed for the worse and the dynamics disappeared too. So that leads me to believe that the two paired wires are incorrect.
Seymour Duncan and Dimarzio have the same color wires too but use them differently from each other. If you check their web sites they list which color wiring to use for full humbucking/in phase/out of phase etc. I suggest trying one of their combinations.
I wish I could tell you exactly how to solve the problem but I've been too busy to dig into my own guitar.
"No Tele For you." - The Tele Nazi
Ha! Tele-ish now inbound.